Approaching the end of Idaho’s longest legislative session in history, the Legislature rushed through HB 389, an omnibus, 26-page property tax bill, in 48 hours. It is as ill-conceived as it is poorly written, and with it, the Legislature is harming Idaho tax payers, particularly those in smaller or rural taxing districts.
Property tax reform is a necessary. Legislative leaders say they want to provide relief, address the impact of increasing municipal budgets and help Idaho’s seniors. HB 389 does none of these things. It will do more to limit the ability of smaller or rural taxing districts to address growth than it will limit the budgets of larger, growing municipalities.
There are two fundamental problems with HB 389.
First, HB 389 prevents growth from paying for itself. When undeveloped areas are improved, the assessed value of such increases and it generates more property tax revenue. Historically, taxing districts have been able to include such development in their budget calculations at 100% of the improved value, generating taxes to pay for services they consume. HB 389 limits the new value on the tax roll to 90% of the value for new construction and annexed property, and 80% of the value of all properties in expiring urban renewal districts.
Proponents argue that this provides tax relief for all taxpayers. Instead, it forces existing development — current taxpayers — to subsidize new growth.
Second, HB 389 purports to address expansion of municipal budgets by imposing an absolute 8% cap on budgets and property tax increases. As written, HB 389 is ambiguous. It is not clear if it is a cap on budget growth or a cap on growth in property taxes.
Idaho currently has a cap of 3% on the increase in “amount of property taxes certified for its annual budget” (Idaho Code 63-802(1)(a)). This may sound absolute, but it is not. Instead, it caps growth of the property taxes certified from year to year before adjusting for new construction, annexation and previously “foregone” property tax increases. However, HB 389 does not use this language in creating the 8% cap. Tax legislation must not be ambiguous.
What’s more, an absolute cap does more to hurt small taxing districts than it does to limit Nampa, Meridian or Boise. Many taxing districts are run on a shoestring and struggle to meet the demands for existing services. To them, an 8% cap on budget growth means they cannot expand services, hire, or undertake capital improvements to serve new development. Fire districts, library districts and other taxing districts are prohibited from increasing funding for necessary services.
As an example, in 2020, one Canyon County municipality budget was approximately $200 million, an increase of 3.5% over 2019. The increase was due to capital expenditures associated with expansion of infrastructure required by the entry of a large employer. With an 8% cap, next year’s budget can increase by no more than $16 million — which is significant, but could be consumed by a single capital project. That jurisdiction will be constrained, but can make planning adjustments.
By contrast, a small Canyon County highway district in an agricultural area poised for growth had a 2020 budget of approximately $4 million. With this cap, next year’s budget can increase only $320,000. Even if it collected impact fees, obtained a grant or entered into a private-public partnership, it cannot spend more than that even if the cities or county it serves approve new development. $320,000 will not improve a single intersection.
Proponents will argue that the cap can be exceeded with approval of 66.6% of the voters in an election — the same number of voters required before a taxing district can take on debt. But this is not debt. This is hiring one more employee, improving the water treatment plan with a DEQ grant or spending impact fees on projects. Making growth contribute to its impact through taxation is appropriate and should not require supermajority votes.
It is clear from comments of the legislators who rushed this “cap” through that they wanted to kneecap local governments. HB 389 will only damage the smallest and most direct providers of public services.
Idaho is growing. As rural communities desperate for investment seek to grow, it is poor policy to prevent these taxing districts from serving their citizens and making them subsidize new growth. Gov. Little, please veto HB 389.
Geoffrey M. Wardle is a partner in Clark Wardle LLP, a Boise real estate law firm and is BOMA International’s government affairs committee chair.